The dwindling size of the legacy CMBS market has had a profound impact on defeasance activity. Research by Trepp found that just 449 CMBS loans totaling $6.4 billion were defeased, or replaced by government securities, last year. That compares with 1,059 loans, totaling $15.9 billion, that were defeased in 2016.

The reality is that there just weren’t that many loans to defease last year, despite ideal market conditions. Typically, defeasance activity flourishes when interest rates are low and property values are high, as was the case in 2016. Activity is further bolstered when the difference between short- and long-term interest rates narrows and the yield curve flattens, which also took place in 2016, notes Trepp.

A large wave of defeasances occurred between 2013 and 2016, when roughly $70.6 billion of loans were replaced by government securities. That spike in defeasance activity coincided with the CMBS Wall of Maturities. Volume is expected to remain steady, but muted thanks to the dearth of 10-year loans issued following the 2008 financial crisis.